Experienced management and long track record of operations

SIPL is promoted by Mr. Ashok Kumar Somani and Mr. Sanjay Kumar Somani who have more than three decades of experience in steel trading business.  SIPL is an authorised and sole distributor of SAIL in Telangana state and Vizag region and is also an authorised dealer for Rastriya Ispat Nigam Limited (RINL), Jindal Steel & Power Plant (JSPL) and Tata Steel Limited (TSL). Company’s customers includes marquee clients such as Pennar industries, Ultratech cements and Dalmia cements to name a few. The company’s dealer network has grown substantially from 210 dealers in FY21 to more than 270 dealers in FY22 and 320 dealers in FY23. The extensive experience of promotors has helped the company establish long-term relationships with its customers and suppliers for repeat orders. Acuite believes that PG may continue to benefit from its established track record of operations and longstanding relationships with its customers and suppliers.

Stable growth in scale of operations albeit decline in profitability

SIPL has witnessed stable growth in its scale of operations to Rs.1577.51 Cr. in FY24 (Prov) as against Rs.1473.82 Cr. in FY23 and Rs.1132.42 Cr. in FY22. The improvement in revenue is majorly supported by growth in volumes in products like plates, structural and TMT bars. However, company’s operating profits margins have declined significantly to 2.03 percent in FY24(Prov) as against 2.65 percent in FY23 and 4.14 percent in FY22. Decline in operating margins is attributed to reduction in average selling price during the past three years. Acuite believes that SIPL’s ability to maintain the stable growth in revenue while maintaining profitability will remain as key rating sensitivity.   

Efficient working capital cycle

The working capital cycle is efficient marked by GCA of 70 days in FY24(prov) as against 70 days during FY23 and 69 days FY22 respectively. The inventory days declined slightly and stood at 35 days in FY24(Prov) as against 38 days in FY23 and 37 days in FY22. Further, the debtor days stood at 27 days in FY24 (prov) as against 22 days in FY23 and FY22.  The creditor days of the company stood at 1 day in FY24 (Prov) as against 5 days for FY23 and1 day for FY22. The creditor days are low as company procures products against advance payments.

Acuite believes that working capital operations of the company will continue to remain in similar range  over medium term considering the nature of business.

Vulnerability of profitability owing to volatility in steel prices
The profitability margins of the company are susceptible to volatility in steel prices in domestic and international market as the firm procures 100 percent of its traded goods from domestic steel makers. Significant changes in prices of steel impact the margins of the company reflected by decline in operating margin to 2.03 percent in FY2024(Prov) from 2.65 percent in FY2023 and 4.14 percent in FY22. Acuité believes that profitability of the company will remain susceptible to volatility in steel prices in the near to medium term.

Susceptibility to cyclicality nature of industry and competitive nature of industry
SIPL is engaged in trading business of steel products to the top steel manufacturers of the country. The steel consumption is majorly dependent upon the economic activities taking place in and around the country. The end user industry being infrastructure and real state, any significant slowdown in these industries will impact the demand of steel and will impact the revenues of the firm. Further, the firm competes with various players in the organized and unorganized segments in the steel trading industry, thus limiting the pricing power.